KONARK SYNTHETIC LTD,MUMBAI vs. ITO WD 10(1)(4), MUMBAI

Although the assessee has raised multiple Grounds of appeal, but the substantive dispute arises from the redetermination of income made by the Assessing Officer in an order passed u/s 154 of the Act dated 13.03.2015 rectifying the income determined earlier in the assessment made u/s 143(3) of the Act dated 08.03.2013 primarily on account of computation of disallowance u/s 14A of the Act.

On the other hand, the ld. DR appearing for the Revenue pointed out that the computation of book profit u/s 115JB of the Act was a mandatory requirement, which has been justifiably rectified by the Assessing Officer in the order passed u/s 154 of the Act.

I have carefully considered the rival submissions. Firstly, I may deal with the recomputation of disallowance u/s 14A of the Act by applying the provisions of Rule 8D(2) of the Rules in the impugned order passed u/s 154 of the Act. In this context, it is notable that the Assessing Officer himself records in the impugned order that there was no response from the assessee and he has proceeded to recompute the disallowance at Rs.35,28,339/-. The preliminary grievance of the assessee before me is that atleast an opportunity be allowed to the assessee to put forth his stand on the recomputation of the disallowance sought to be made by the Assessing Officer. I find the plea of the assessee quite justifiable and accordingly direct the Assessing Officer to consider the submissions that the assessee may put forth before him while proposing to recompute the disallowance as per Rule 8D(2) of the Rules for the purposes of Sec. 14A of the Act under the normal provisions of the Act.

Insofar as the application of clause (f) of Explanation – I to Sec. 115JB(2) of the Act relating to the determination of amount relatable to income exempt u/s 10 of the Act for computing the book profit u/s 115JB of the Act is concerned, it is notable that in the order passed u/s 115JB of the Act, the Assessing Officer has adopted the calculation made as per Rule 8D(2) of the Rules. This action of the Assessing Officer is clearly contrary to the decision of the Special Bench of the Tribunal in the case of Vireet Investment (P.) Ltd., [2017] 82 taxmann.com 415 (Delhi – Trib.) (SB). In any case, the learned representative for the assessee had referred to a copy of the show-cause notice issued by the Assessing Officer u/s 154 of the Act dated 02.01.2015, which clearly shows that the Assessing Officer did not propose any tinkering to the book profit u/s 115JB of the Act in the said notice. Notably, in the assessment finalised u/s 143(3) of the Act dated 08.03.2013, the Assessing Officer had accepted the computation of book profit as made by the assessee for the purposes of Sec. 115JB of the Act. Thus, in the absence of any mention of the same in the show-cause notice issued u/s 154 of the Act, such an adjustment could not have been made in the impugned order passed u/s 154 of the Act. Thus, the action of the Assessing Officer on this count is set-aside as being bereft of any jurisdiction. So, however, the Assessing Officer shall be at liberty to determine the ‘book profit’ u/s 115JB of the Act, as the law may permit.

In the result, appeal of the assessee is allowed to the above extent.